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Hedge Funds Are Selling Xinyuan Real Estate Co., Ltd. (XIN)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Xinyuan Real Estate Co., Ltd. (NYSE:XIN).

Xinyuan Real Estate Co., Ltd. (NYSE:XIN) was in 6 hedge funds’ portfolios at the end of the first quarter of 2020. XIN has experienced a decrease in enthusiasm from smart money in recent months. There were 7 hedge funds in our database with XIN positions at the end of the previous quarter. Our calculations also showed that XIN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Izzy Englander of MILLENNIUM MANAGEMENT

Israel Englander of Millennium Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a glance at the recent hedge fund action encompassing Xinyuan Real Estate Co., Ltd. (NYSE:XIN).

How are hedge funds trading Xinyuan Real Estate Co., Ltd. (NYSE:XIN)?

Heading into the second quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in XIN over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Is XIN A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of Xinyuan Real Estate Co., Ltd. (NYSE:XIN), with a stake worth $0.6 million reported as of the end of September. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $0.3 million. Sensato Capital Management, Millennium Management, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Sensato Capital Management allocated the biggest weight to Xinyuan Real Estate Co., Ltd. (NYSE:XIN), around 0.08% of its 13F portfolio. Schonfeld Strategic Advisors is also relatively very bullish on the stock, earmarking 0.0022 percent of its 13F equity portfolio to XIN.

Seeing as Xinyuan Real Estate Co., Ltd. (NYSE:XIN) has faced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few money managers that slashed their entire stakes by the end of the first quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP cut the biggest position of the “upper crust” of funds tracked by Insider Monkey, worth about $0.1 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also sold off its stock, about $0.1 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Xinyuan Real Estate Co., Ltd. (NYSE:XIN) but similarly valued. We will take a look at L.B. Foster Company (NASDAQ:FSTR), Duluth Holdings Inc. (NASDAQ:DLTH), Superior Group of Companies, Inc. (NASDAQ:SGC), and Priority Technology Holdings, Inc. (NASDAQ:PRTH). All of these stocks’ market caps resemble XIN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FSTR 11 30584 -1
DLTH 8 4692 -1
SGC 3 2543 -1
PRTH 3 1111 0
Average 6.25 9733 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $1 million in XIN’s case. L.B. Foster Company (NASDAQ:FSTR) is the most popular stock in this table. On the other hand Superior Group of Companies, Inc. (NASDAQ:SGC) is the least popular one with only 3 bullish hedge fund positions. Xinyuan Real Estate Co., Ltd. (NYSE:XIN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th and surpassed the market by 14.2 percentage points. Unfortunately XIN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); XIN investors were disappointed as the stock returned 16.4% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.